The Keynes Solution

Below is a letter I set to the letters to the Editor Department of THE ECONOMIST to respond to an unfair comment that the book reviewer made regarding my book, THE KEYNES SOLUTION.

Sir:

This is a response to the review of my book THE KEYNES SOLUTION (“The Keynes Comeback” October 3)

Today’s economic problems involves the largest global downturn since the Great Depression. Ultimately, however, the reviewer declares that the policies I developed for the 21 century global economy from Keynes’s ideas and philosophy for ending the Great Depression and creating a full employment global economy after the second world war are “to most others[ mainstream economists? politicians? powerful interest groups?] …. solutions that are outmoded and unworkable”.

Aren’t these “most others” the same people who for the past three decades have advocated government de-regulation of financial markets, no constraints on international capital flows (which led to the contagion of a U.S. sub-prime market collapse to threaten the global banking community), free trade with flexible exchange rates, and perfectly flexible prices and wages so that any unemployment problem can always be eliminated by removing any social safety net that protects the unemployed and thereby force unemployed workers to choose to accept lower wages or see their family starve to death? These classical policies are ultimately based on the ideas espoused by 18th century Adam Smith and 19th century classical economists such as David Ricardo and Leon Walras.

The reviewer argues that “the world economy may have changed beyond recognition since 1944 but to a true disciple of Keynes…[his] policies make sense” while most (mainstream economists?) think them “outmoded”. Since the world economy has changed much more since the 18th and 19th century of classical economists, does the reviewer really believe these ideas of 18th and 19th century economists are not “outmoded” and unfounded or worse merely because “most ” mainstream economists and policymakers still cling to such failed ideas and policies rather than face the reality of Keynes’s analysis of how modern market oriented, money using economies actual operate?

Finally I am reminded of the advice an elder devil gives to a younger devil in one of C. S. Lewis’s books–namely do not argue over whether something is true or not but whether it is outmoded since this is practical propaganda that is more difficult to counteract.

Paul Davidson

Share this:

The active role of the public economic policy was sustained in a contradictory fashion(we don’t know to save the general system or some big financial subjects, as in the Moore’s film)even by the lasting President Bush.The problem is if this role is limited to a desperate situation of fall or it can prevent the situation.
We are for the last one even if we must have the humbleness to recognize the impact of extraeconomic factors.

I like your letter – some time there is no arguing with the Economist.

I get a little upset with the whole debate. Keynes is so grossly misinterpreted and apart from anything what we lack is not his theories but his genius.

He was able to repeatedly offer solutions to the pressing problems of his day. He would not have been reaching for his predecessors but was purely innovative. He was also supported by the (policy-wise) courageous post-war governments.

With respect, I feel that Keynes is somewhat over-rated. Undoubtedly, he had the right idea that you cannot leave everything to the markets. However, there are many dimensions to all this, and what is required is a very advanced form of “Neo-Keynesian Economics” Here I suggest my project of Transfinancial Economics (p2pfoundation entry) which arguably represents a real breakthrough in understanding though it may be “too advanced” for its time.

TFE has been around for years as The Fluffy Economist. Please use another acronym :P

I had a read of the TFE, though have yet to take it fully in. At first brush it requires systems radically different to our ones now, and a level of scrutiny and morality not currently found in any government I can think of, but…

there’s some damn fine thinking there. It’s hard to dismiss and it’s so completely different to anything I have come across. I’l stay tuned.

I always enjoy Paul Davidson’s expositions about the place of the great J.M. Keynes in the history of Economic thought & policy.He was not only a great & civilized man.But a chronic worrier about “la condition humane” and just how easily the fabric of civilized restraint can be torn asunder by prolonged periods of economic distress & frustration of our natural Promethean energies. Keynes understood clearly that the need to work goes beyond the basic necessities of putting food on our tables, a roof over our heads & clothes on our backs. It’s the core of our human dignity. But Keynes worried just as much about the threats to the thin fabric of our civilization posed by the maniacal conspiratorial panaceas for “curing all that ails us”; That stalked his own times..and ours.For this reason alone, all you born-again-“progressives” who now seem to be groping for one more “hair of the dog that bit yeh”,(Old time boozers’ expression for an early morning gulp of the amber fluid)) should refresh yourselves with Keynes ‘feelings’ about DAS KAPITAL & its author.
A few samples:[1]”I know that it is historically important.And I know that many people,not all of whom are idiots, find it a sort of “rock of ages” and containing ‘inspiration’.Yet,when I look into it,it is to me inexplicable that it can have this effect.It’s dreary,out-of-date academic controversializing seems so unsuited for this purpose..”It beats me. Clearly there is some defect in my understanding”. [2]”What is the sociological value of DAS KAPITAL ? I am sure that the contemporary economic value….is NIL.” My personal favorite?..From a man who often rivaled Oscar Wilde with his style of incisive wit:”I prefer Engels of the two.I can see that they ‘invented’ a certain method of carrying-on; And a vile manner of writing style..Both of which their successors have maintained with fidelity. But if you tell me that they have discovered a clue to the economic riddle ?..Still, it beats me”.Not to mention the mountains of corpses & rivers of blood that these ‘successors’ have caused…with the same ‘fidelity’.For more about Keynes’ frequent ad-hoc insights & the limitations imposed by the historical era he lived & worked in, Please consult TELOS & TECHNOS:The Teleology of Economic Activity & the Origins of Markets.And GOOGLE on the WEB(chrome)[1] Norman Roth, Technos, or [2]Norman Roth, Markets

Norman, Great stuff. Thanks. However, it would be nice to see some of your thinking on how to implement an effectively pragmatic (semi-pure) solution for this impure impure socioeconomic melee/maelstrom of ours (the ecocidal market economy), before it’s too late to mount an effective Exit Strategy. Sincerely, M

Re Merijnknibbe and others ,i am not an economist or an academic but a simple uneducated pensioner whos lifes experience has tought me that the moment any organisation or individual excludes excludes further discussion discussion and observation of the subject matter the former knowledge becomes irrelevant. Therefore from my point of view this highlights the very reason why main stream economists are powerless to deal with the economic chaos theyhave created Here Paul Davidsons quotation of C S Lewis'”aptly describes mainstream economists attitude “do not argue that something is true or not but wether it is outmoded since this is practicalpropaganda that is more difficult to counteract.Edward K Ross

July 23, 2013,
To understand what follows, Please refer back to my post of January 28, 2011 above. Which, in turn referred to the eminent Paul Davidson’s October 24, 2009 response to a review of “THE KEYNES SOLUTION”. I loved his C.S. Lewis quote. It would also be helpful to the interested reader to read over Lars Syll’s insightful LIMITS of CAUSATION and STATISTICAL INFERENCE. It’s directly but subtly, related to what follows. In the interests of being ” hoflich und richtig” [excuse my scarcely recalled erste aufgabe Deutsch] I would like to remind some readers that even if you don’t agree with another’s perspective, the merits & capabilities of those who advocate it, should be respected and addressed accordingly. Or, put another way: Respect is something you have to give in order to get. And please don’t potty-mouth RWER’s editors.They’re doing just fine.

As the author of the Paradigm “that dare not speak its name” I would like to draw your [plural] attention to the beginning of Chapter 18 of J.M. Keynes’ classic of economic thought, THE GENERAL THEORY..” Keynes, as a quick-thinking disciplined thinker, whom even his colleague, Bertrand Russell, feared in argument, stated clearly that he maintained the two basic Walrasian constraints of constancy of “Technique and Tastes”. This was not only consistent with his father John Nivelle Keynes’ view that Technological change was not in the domain of Political Economy. It allowed Keynes to zero in on the “overthrow” of Ergodicity, gross substitutability and the Neutrality of money. While holding “Technology & Tastes” exogenous.[See also Ludwig Von Mises’ NON -NEUTRALITY OF MONEY, 1938].And to locate the roots of economic instability in the behavior of Savers/hoarders, investors and the age old “all to human” speculative impulse. Note that Keynes did not include Consumers’ behaviour as an agent of uncertainty. Because he stated up front in Chapter 18, that he held “tastes” constant. As in the concept of the “Consumption function”. No folks, Keynes accepted human nature as it was. He was no conspiracy theorist.He knew what those folks were capable of if they ever captured the power of the state. And he loved Hayek’s “ROAD to SERFDOM” [1944].
Thus, in the well-considered opinion of many, Keynes’ most important contribution to economic thought was the elevation of his own “uncertainty principle” to the apex of “The economic riddle”. It’s embodied in Paul Davidson’s teaching of Keynes’ “repudiation of Ergodicity”.
The consequences that flowed from this were quite consistent with the great Hayek’s understanding that “General Pattern Prediction” was as good as [“asymptotic” ?] Economics can get. Or why the tradition of quantifiable predictability, proof by theorem and reproduction of results, so basic to the Physical sciences was an intrinsic barrier- limit in Economic investigation. Indeed, Hayek’s ideas of LIMIT are foundational for understanding the crucial distinction between Economics & the physical sciences. The Austrian School’s appreciation of “Asymmetrical Knowledge” [NOT INFORMATION !] is also a major source of natural uncertainty in the “unfolding” [The great Thorstein Veblen’s term] of economic events. Not an agent of unjust inequality that must be forcibly “levelled” by state regulation. [“Market fundamentalist” hater Joseph Stiglitz et al]. Asymmetrical KNOWLEDGE is just part of the human condition. It activates the division of labor and makes “tacit knowledge” & human capital, part of the supply chain for satisfying freely-chosen consumers’ wants.
For aficionados of analogy, Telos and Technos describes Keynes’ paradigm as a “half-way house”. Even though he rejected Ergodicity, neutral money & gross substitutability, he did stick to the basic subject material of Economics, as a conscientious man of his own time .He tried to explain employment, unemployment, income generation, investment & saving and their aggregate formation. Because he understood clearly that explanation precedes prescriptive remedy. What I have done in TECHNOS & TELOS is to reject the exogenizing of “tastes” and Technological change. And explain their impact on employment, the “natural” participation rate”, the different & controversial protocols of estimating unemployment, and the very definition of work. And to explain their role as the natural roots of UNCERTAINTY; And to link the “micro” to the “macro”.[It’s the epitome of the “Gestalt”. And I’m not the first to find it in economic phenomena.Instead of expostulating ad nauseam about the virtues of “pluralism”and how it will somehow make the details of economic history come together automatically to “explain everything”. Is this some kind of hang-over of the German Historical School’s understanding of “empiricism” ?
A Kantian “impossibility theorem” if ever there was one ! There’s nothing so practical as a good [falsifiable] theory/paradigm. Keynes, Hayek Mises & old Immanuel Kant, wherever they are, would have understood. Thank you for your patience.
Please GOOGLE: [1] Norman Roth, Technos [2] Norman Roth, Origins of Markets [3] Telos & Technos, Roth.

Its such as you learn my mind! You seem to grasp so much
about this, such as you wrote the e-book in it or something.
I believe that you simply can do with some p.c. to force the
message home a bit, however instead of that, this is wonderful blog.
A fantastic read. I will certainly be back.

Further to my post of July 23, 2013:
In the spirit of Immanuel Kant and the concept of Paradigm supercession, which is its unavoidable & reigning descendant:
TELOS & TECHNOS may well be the paradigm “That dare not speak its name”. [Oscar Wilde never said anything like that. It was a British judge of the late Victorian era]. But I designed it to be ‘falsifiable’ with good [not perfect] statistics that are easily available from a wide variety of sources: Or to use such statistical knowledge [NOT information] when appropriate, to give the developing paradigm substance and direction. Just as the “sage of Koenigsberg” intended when he presented his “Nebular Hypothesis” of Solar system formation more than two centuries ago. i.e. in the spirit of “erklarung”, Not a “nacht und nebel” cocktail of directionless polemical critique, mixed with appeals for yet more “scientific” mimicry, to bring economics into the domain of “real science”.
With this purpose in mind I would draw the attention of interested readers to an article in the August 2013 issue of M.I.T. TECHNOLOGY REVIEW. Which is hard to miss on new stands because of its blinding Halloween color scheme. The article seems to be entitled “HOW TECHNOLOGY is DESTROYING JOBS”. Or by way of subtitle, “Are we headed for Chronic unemployment” ?
The article has its limitations. Which I would be pleased to discuss at a future date. And I’m
almost sure [not “certain’] that its authors are known to some of RWER’S Board of Editors. I’m equally sure these MIT economists did not design their admirably competent research with TELOS & TECHNOS in mind. But it’s a remarkably good fit with one side of the philosophy, content, & direction of argument, of TELOS & TECHNOS. Indeed, it would make a good, if belated citation, in the bibliography of a later edition of TELOS & TECHNOS. I urge all of you to read this short article. Thank you again for your patience & good faith, RWER editors.
Norman L. Roth, Toronto, Canada, Please GOOGLE: [1] Norman Roth, ECONOMICS of TECHNOLOGY [2] Norman Roth, Origins of Markets [3] Norman Roth, TECHNOS
[4] TELOS & TECHNOS, Roth

Email subscription to this blog

RWER 26,498 subscribers

Real World Economics Review

The RWER is a free open-access journal, but with access to the current issue restricted to its 26,498 subscribers (07/12/16). Subscriptions are free. Over one million full-text copies of RWER papers are downloaded per year.

—- Forthcoming WEA Paperbacks —-

———— Armando Ochangco ———-

Shimshon Bichler / Jonathan Nitzan

————— Mauro Gallegati ————–

————— Herman Daly —————-

————— Asad Zaman —————

—————– C. T. Kurien —————

————— Robert Locke —————-

Guidelines for Comments

• This blog is renowned for its high level of comment discussion. These guidelines exist to further that reputation.
• Engage with the arguments of the post and of your fellow discussants.
• Try not to flood discussion threads with only your comments.
• Do not post slight variations of the same comment under multiple posts.
• Show your fellow discussants the same courtesy you would if you were sitting around a table with them.